The Standard

SMC, Metro Pacific fight for infra control

Corporate rivalries and boardroom wars are good fodder for a newspaper story. They excite readers of the business section and follow every development that could influence the price of the listed stock involved in the corporate tussle.

Business rivalries and corporate wars, however, produce victors and losers. The followers and readers of the unfolding story, oftentimes stock market investors, may also be in the winning or losing end of the battle, depending on which stock or issue they invested in.

The latest business rivalry between conglomerates Metro Pacific Investments Corp. and San Miguel Corp. favored the Salim Group. The two have long been at odds against each other, contending in every asset for sale and government contract up for bidding.

San Miguel fought hard to convince President Benigno Aquino III to red-bid the Cavite-Laguna Expressway project, and eventually succeeded in forcing the state to introduce a floor price of over P20 billion, much higher than the original offer of P11.7 billion.

The tandem of Ayala Corp. and Aboitiz Equity Ventures Inc. was the frontrunner in last year’s first auction with the highest offer of P11.66 billion, but President Aquino scrapped that bidding and ordered the holding of another one after it became publicly known that San Miguel, which had been disqualified on a technicality, actually submitted a far higher bid of P20.1 billion.

President Aquino received flak for ordering another public bidding, but investors’ interest did not wane after Metro Pacific joined the re-bid. Metro Pacific bested rival San Miguel’s Optimal Infrastructure Development Inc. with a surprisingly aggressive offer of a premium payment of P27.3 billion to build the toll road and operate it for 35 years.

The Public Works Department on Monday gave the notice of award to Metro Pacific’s MPCALA Holdings Inc. after the company last week passed the post-bidding financial evaluation by the Specials Bids and Awards Committee.

MPCALA Holdings, according to Public Works, must prepare the detailed engineering design from July until mid-next year, and start construction work from July 2016 to July 2020. The operation and maintenance period will begin from the project completion until July 2050.

CALAx will link the Manila-Cavite Toll Expressway, which is also run by MPIC, and South Luzon Expressway, which is operated by a San Miguel-led consortium.

Worth the delay?

MPIC’s premium payment on a staggered basis, is on top of the project’s construction cost of P35.4 billion and almost a fourth higher than the P22.2-billion offer of Optimal Infrastructure.

“It’s worth the wait considering the discrepancy of the bids from the previous auction... The results say everything went perfectly all right for the government and for the country,” Public Works Undersecretary Rafael Yabut said in a media interview.

MPIC president Jose Maria Lim said his company had to offer a much higher premium after carefully studying several factors, including the volume of traffic and higher population growth of Cavite and Laguna, which have a respective population of 3 million and 2 million people.

“So we did expect that because of the delay, the traffic would probably start off at a higher level because of the population growth,” Lim told the media. “There have also been commercial establishments and developments that helped traffic start off at a higher rate.”

MPIC noted a lower cost estimate, especially in the prices of steel and other petroleum-related components. “In the meantime, we were able to do a more intense review of the cost estimates, which, we believe, went down—particularly steel and the petroleum-related components,” Lim said.

“That plus our intense desire to build more roads caused us to accept a slightly lower yield than what we assumed the previous bid. So all of these factors will show a more aggressive bid,” he added.

The government appeared to be a winner in the re-bid, but the exercise may have tainted government’s sincerity in the auction process when it voided the initial proceedings.

San Miguel president Ramon S. Ang, meanwhile, is not complaining so far. He said he was contented with the result “because there was no cheating” and that San Miguel’s participation in the bid was “good for everybody and good for the country” because competition made the bidders bid higher.

“Once there is competition, it gives the best value to the government,” he said. “There is no regret about losing the bid. I rarely regret making a losing bid.”

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